Impact of the quality of internal audit function and the internal audit outsourcing/co-sourcing on external audit fees: Evidence from listed companies in Australia

Author Identifiers

Hasina Farhana Sarkar
ORCID: 0000-0002-5291-2031

Date of Award


Degree Type


Degree Name

Doctor of Philosophy


School of Business & Law

First Advisor

Associate Professor Hadrian Geri Djajadikerta

Second Advisor

Dr Saiyidi Mat Roni


This study is driven by two competing perspectives, substitutive and complementary, to examine the effects of internal audit function quality and sourcing arrangements on external audit fees. The substitution perspective expects high-quality internal controls to substitute for external audit activities, thus, decreasing external audit fees. In contrast, the complementary perspective proposes that high-quality internal audit functions require more reviews and reports, leading to increased external audit fees. This study analyses the competing perspectives using a combined dataset from the Morningstar database and questionnaire responses from chief audit executives of listed Australian companies. This study established a composite measure of internal audit function quality based on five internal audit function attributes to assess the relationship between internal audit function quality and audit fees. An ordinary least square regression analysis of 408 listed Australian firms from 2017 to 2018 found a positive relationship between internal audit function quality and external audit fees. Analyses of sourcing arrangements for internal audits suggest that higher internal audit functions will increase audit fees regardless of firms’ sourcing arrangements. This study provides a much needed literary update given that previous literature focused on examining the internal audit function quality and audit fee linkage in Australia before 1 July 2004, when the Corporate Law Economic Reform Program No. 9 was introduced. The Corporate Law Economic Reform Program No. 9 seeks to improve investor confidence in publicly listed companies in Australia and regulates auditors’ engagement. There have been contentious debates about the costs and benefits of this law for Australian public companies. Effects from the Corporate Law Economic Reform Program No. 9 are captured in the observation window for this study (1 January 2017 to 31 December 2018), filling an important gap in the literature. This study also contributes to the internal audit outsourcing literature by exploring the relationship between the outsourcing arrangement of internal audit functions and the external audit fees among listed companies in Australia.

Access Note

Access to this thesis is embargoed until 22 November 2026. At the expiration of the embargo period, access to the thesis will be restricted to current ECU staff and students. Email queries to library@ecu.edu.au

Access to this thesis is restricted. Please see the Access Note below for access details.


Paper Location